Part 6: Local Authorities (Members' Interests) Act 1968

Local government: Results of the 2016/17 audits.

Since 2005, we have been seeking a reform and review of the Local Authorities (Members' Interests) Act 1968 (the LAMIA).38

In 2011, the then Minster for Local Government sponsored a review of the LAMIA.39 The Department of Internal Affairs issued a discussion paper on the LAMIA and requested submissions from affected parties.40 We provided a submission in February 2012. Nothing came from this review.

The LAMIA is almost 50 years old and, in our view, a review is well overdue. In many areas, its language is archaic, difficult to follow, and out of date. We have previously expressed our view that difficulties with the LAMIA can have a significant effect on the operation of the local democratic process.

Under the LAMIA, members cannot:

  • enter into contracts with their local authority worth more than $25,000 in a financial year; or
  • discuss or vote on matters before their authority in which they have a direct or indirect pecuniary interest, other than an interest in common with the public.

In 2016, there was a local authority election. We received our usual number of requests for advice on whether people were eligible to stand for election. For the 2016 election, we were not aware of anyone being unable to stand for election because they had a contract with their local authority that exceeded the statutory limit of $25,000 at the time of their election (which does not mean this did not occur, but no instances came to our attention).

However, after the election, we received a request from a newly elected member of a Council committee to consider his eligibility to stand. He had provided maintenance services for the Council for several years. The annual payment for his maintenance services only marginally exceeded the statutory limit of $25,000.

Ultimately, we did not have to consider his eligibility because he resigned from the committee. However, there was potential for an unfortunate and unfair outcome as a result of a contract rule in the LAMIA that can be difficult to apply. It does little to encourage or strengthen local democracy.

It makes little sense that the LAMIA has harsher consequences for people who have not yet been elected than for people who have already been elected. There is no risk of preferential treatment, undue influence, or significant and ongoing conflicts of interest when the person is not a member of the local authority at the time the contract was entered into. Any concerns about influence when the contract comes up for review or renewal would be able to be managed in the usual way.

This is one of the issues that could usefully be addressed if the Department of Internal Affairs were to resume the review of the LAMIA. We have previously expressed doubts about whether the contracting rule continues to serve any useful purpose.

The statutory limit of $25,000 for members to have an interest in a contract with the local authority has not been adjusted for inflation since 1982. Using the Reserve Bank of New Zealand's inflation calculator, that amount is about $90,000 today.41 This is almost four times the amount that we are currently required to administer.

This results in unnecessary compliance costs for local authorities having to ask us for approvals for councillors who have insignificant contracts with them, with little benefit for anyone.

Another difficult aspect of the contracting rule is applying it to subcontracts. The contracting rule applies to subcontracts, and subcontract is defined broadly. In 2017, we dealt with a local authority member who owns an engineering business that supplies goods and services to a wide range of customers that have contracts with the local authority. The member is still subject to the contracting rule even though they may not be able to predict whether their customer will use the goods or services to perform contracts with the local authority.

As long as the contracting rule remains the law, we are obliged to apply it as it stands.

Our recent experience suggests that the participation rule is also becoming difficult to operate in practice.

There is a risk that the LAMIA applies blunt rules and cumbersome approval procedures to matters that require reasonably subtle and immediate judgement.

Our work in 2016 and 2017 issuing declarations for councillor participation in the Ruataniwha Water Storage Scheme decisions by Hawke's Bay Regional Council is a good example of the complexity of the issues that councils are required to grapple with.42 In our view, the approval processes and tests that the LAMIA requires us to administer may not be the best way to manage potential conflicts of interest in such situations.

It is also questionable whether a criminal sanction is appropriate. The LAMIA is out of step with the approach other sectors take to managing conflicts of interest in governance bodies under the Crown Entities Act 200443 and other similar legislation.

In other sectors, the legislation may set out declaration requirements and sometimes even rules on participation, but these are left to the entity to manage and administer. Failure to follow the requirements may result in breaches of duty to the organisation or political accountability of some kind but not a criminal sanction.

It is very unusual to have an independent third party such as the Auditor-General making final decisions on who can and cannot participate and for the criminal law to be used as a penalty.

We also note that, in some situations, the financial interest regulated by the LAMIA may be only part of the issue and perhaps not even the major risk. The LAMIA regulates only financial interests. It does not regulate more general conflicts of interest, which may arise as a result of other roles that a councillor has or their personal associations.

We have discussed situations with council staff where there were significant concerns about a councillor's non-financial interests, and a marginal concern about the financial interests regulated by the LAMIA. In those circumstances, it may give a misleading impression if we confirm that the LAMIA does not prevent participation.

Councillors can sometimes derive false comfort from such advice, and take it to mean that they are free to participate, when in fact their participation may still create general legal risks for the council's decision-making.

We will continue to raise our concerns about the LAMIA with the Department of Internal Affairs. We appreciate the continuing support from Local Government New Zealand, the Society of Local Government Managers, and local authorities.

38: Office of the Auditor-General (2005), The Local Authorities (Members' Interests) Act 1968: Issues and options for reform, Wellington.

39: Conflict of interests rules to be reviewed (2011), at

40: August 2011 Internal Affairs Discussion Document, Managing Conflicting Interests in Local Government: The Local Authorities (Members' Interests) Act 1968 and Associated Issues.

41: See Reserve Bank of New Zealand's inflation calculator at

42: Office of the Auditor-General (2016), Application for an exemption or a declaration by Cr Hewitt.

43: Sections 62-69.